SOLUTIONS BEYOND THE OBVIOUS - tsacpa.com...May 30, 2020 · TRONCONI SEGARRA & ASSOCIATES LLP ....

PRESENTED BY TRONCONI SEGARRA & ASSOCIATES LLP PRESENTED BY TRONCONI SEGARRA & ASSOCIATES LLP

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SOLUTIONS BEYONDTHE OBVIOUS

COVID-19 Update with Q&A

June 5, 2020


Notices

This publication has been prepared for general guidance on matters of interest only; it does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy of completeness of the information contained in this publication; and, to the extent permitted by law, Tronconi Segarra & Associates LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this website or for any decision based on it.

Copyright 2020 Tronconi Segarra & Associates. All rights reserved.


Today’s Presenters

Thomas E. Mazurek, Jr., CPAPartner

[email protected]

Charles P. Pezzino, CPAPartner

[email protected]

Daniel A. Spada, CPAPrincipal

[email protected]

Follow Tronconi Segarra & Associates on for updates on the latest COVID-19 developments

mailto:[email protected]



https://www.linkedin.com/company/tronconi-segarra-&-associates-llp


• Updates/New Developments Paycheck Protection Program Main Street Lending Program

• Q&A Session

Agenda


Paycheck Protection ProgramSummary of All Paycheck Protection Program Loan Approvals (as of May 30, 2020)

• Number of participating lenders: 5,454• Overall average loan size: $114,000• New York: 290,451 approved loans for $37,332,202,200 (#3 behind CA, TX)

https://home.treasury.gov/system/files/136/SBA-Paycheck-Protection-Program-Loan-Report-Round2.pdf

Lender Size Approved Loans Approved Dollars

> $50 Billion in Assets 1,551,170 $187,506,735,324

$10 to $50 Billion in Assets 701,693 99,878,362,965

< $10 Billion in Assets 2,222,736 222,849,400,635

Total 4,475,599 $510,234,498,923

Total reflects both rounds of PPP funding, including approximately$3 billion of loan cancellations.

https://home.treasury.gov/system/files/136/SBA-Paycheck-Protection-Program-Loan-Report-Round2.pdf


Paycheck Protection ProgramInterim Final Rule on Loan Forgiveness (May 22, 2020)

Payroll Costs

• Payroll costs are generally incurred on the day the employee’s pay is earned (i.e., on the day the employee worked). For employees who are not performing work but are still on the borrower’s payroll, payroll costs are incurred based on the schedule established by the borrower (typically, each day that the employee would have performed work).

• If an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation.

• Additionally, if a borrower pays furloughed employees their salary, wages, or commissions during the covered period, those payments are eligible for forgiveness as long as they do not exceed an annual salary of $100,000, as prorated for the covered period.

No other limits have been imposed on the payment of bonuses, so the bonus payment apparently can exceed 8 weeks’ worth of the annual bonus amount and still be eligible for forgiveness.


Paycheck Protection ProgramInterim Final Rule on Loan Forgiveness (May 22, 2020)

Owner Compensation

• No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.

Loan Forgiveness

Loan forgiveness can be no more than the lesser of:• 8/52 of 2019 compensation (i.e.,

15.38% of 2019 compensation) or

• $15,385 per individual in total across all businesses.

Forgiveness capped by…

Owner-employeesthe amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf.

Schedule C filers the amount of their owner compensation replacement, calculated based on 2019 net profit.

General partners

the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.


Paycheck Protection ProgramInterim Final Rule on Loan Forgiveness (May 22, 2020)Non-Payroll Costs

• Eligible non-payroll costs cannot exceed 25% of the loan forgiveness amount.

• For example, a borrower’s covered period begins on June 1 and ends on July 26. The borrower pays its May and June electricitybill during the covered period and pays its July electricity bill on August 10, which is the next regular billing date. The borrower may seek loan forgiveness for its May and June electricity bills, because they were paid during the covered period. In addition, the borrower may seek loan forgiveness for the portion of its July electricity bill through July 26 (the end of the covered period),because it was incurred during the covered period and paid on the next regular billing date.

This example allows for more than 56 days of electric costs. The SBA indicated that the 25% cap on non-payroll costs will avoid excessive inclusion of non-payroll costs.

Eligible Costs Specific Provisions

Interest payments on any business mortgage obligation on real or personal property

Incurred before February 15, 2020 (does not include payments of principal or prepayments of interest)

Payments on business rent obligations on real or personal property

Under a lease agreement in force before February 15, 2020.

Business utility payments

For the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

Loan Forgiveness

Non-payroll costs are eligible for forgiveness if they were:• paid during the covered period;

or• incurred during the covered

period and paid on or before the next regular billing date, even if the billing date is after the covered period.


Paycheck Protection ProgramInterim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (May 22, 2020)

SBA Review Process

• SBA may review a PPP loan of any size at any time it deems appropriate. • Borrowers must retain supporting documentation for PPP loan for 6 years after the date the loan is

forgiven

• SBA may review a borrower’s certifications and representations regarding their eligibility for a PPP loan, the loan amount, the use of PPP loan proceeds and whether borrower is entitled to loan forgiveness.

• If documentation submitted to SBA indicates that the borrower may be ineligible, SBA will require the lender to contact the borrower in writing (within 5 days) to request additional information or request information directly from the borrower. SBA will consider all information provided by the borrower in response to such an inquiry.

• If SBA determines that a borrower is ineligible for the PPP loan, SBA will direct the lender to deny the loan forgiveness application. SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.

• In the case of an SBA determination of ineligibility, the Borrower can appeal the determination (SBA will issue a separate interim final rule on this process).


Paycheck Protection ProgramInterim Final Rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (May 22, 2020)

Lender Review Process

• Lenders shall confirm receipt of the borrower certifications, documentation related to payroll and non-payroll costs and borrower calculations on the loan forgiveness applications.

• Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness.

• Lender must issue a decision on a loan forgiveness application to SBA no later than 60 days after receipt of a complete loan forgiveness application from the Borrower. This decision can be:

• Approval (in whole or in part)• Denial – Lender must notify the Borrower in writing that it has issued a decision to SBA denying the

forgiveness application. Within 30 days of notice from the lender, the borrower may request SBA review the lender’s decision (at the sole discretion of SBA).

• Denial without prejudice (due to pending SBA review)

• SBA will (subject to review of the loan or loan application), remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, no later than 90 days after the lender issues its decision to SBA. SBA will deduct EIDL advance amounts from the forgiveness amount.


Paycheck Protection ProgramPaycheck Protection Program Flexibility Act of 2020 (H.R. 7010)

• Bipartisan legislation introduced by Rep. Dean Phillips (D-MN) and Rep. Chip Roy (R-TX) in the House of Representatives last week.

• Passed by 417 to 1 margin in the House on May 28, 2020• Passed by unanimous voice vote in the Senate on June 3, 2020.

The legislation is expected to be signed into law today.

The amendments made by this Act shall be effective as if included in the CARES Act (Public Law 116–136) and shall apply to any loan made pursuant to section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)) or section 1109 of the CARES Act.



1. Increasing repayment period from 2 years to 5 years for any loans made on or after the date of enactment of this legislation.

• Borrowers and Lenders will not be prohibited from mutually agreeing to modify the repayment terms of any PPP loans previously disbursed.

• Interest rate remains at 1%

Borrowers who entered into PPP loans prior to the enactment of H.R. 7010, and who believe they may not attain full forgiveness, should contact their lenders to renegotiate the maturity date of their PPP loans.

Lenders may suggest that terms be renegotiated subsequent to the approval of the PPP loan forgiveness application. The promissory note will need to be modified at that point for the revised principal balance, if any, so it may be the best time to extend the maturity date for the remaining PPP loan (rather than multiple modifications).

Bear in mind that any emergency relief funds granted under the SBA’s EIDL program (i.e. up to $10,000) will be deducted from the eligible PPP loan forgiveness and will result in a PPP loan balance that must be repaid.



2. The covered period, as defined in section 7(a)(36)(A)(iii) of the Small Business Act, is amended, and now means the period beginning on February 15, 2020 and ending on December 31, 2020.

The covered period for using PPP loan proceeds previously ended on June 30, 2020.

The extension of the covered period should not be construed to permit SBA to continue accepting PPP loan applications after June 30, 2020 (based on “Congressional Intent for H.R. 7010” letter).



3. For loan forgiveness purposes, the covered period now means the period beginning on the date of origination of a covered loan and ending the earlier of:

• 24 weeks after the date of origination, or• December 31, 2020. A borrower that received a covered loan before the date of enactment of this legislation may elect for the covered period to end on the date that is 8-weeks after the date of the origination of such covered loan.

To the extent it is advantageous, borrowers may now elect to use the extended covered period not to exceed 24-weeks from their PPP loan origination date or December 31, 2020.

Borrowers should be able to submit their PPP loan forgiveness application whenever they believe they have complied with eligible expenditures and are assured of maximum forgiveness.

There has been no guidance yet on how the extended covered period impacts Owner-Employees, Schedule C filers or Independent Contractors who are using the 8/52 of 2019 compensation formula to determine forgiveness.



4. During the period beginning on February 15, 2020 and ending on December 31, 2020, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of FTE employees if the borrower, in good faith:

• is able to document:i. an inability to rehire individuals who were employees of the eligible recipient on

February 15, 2020; and ii. an inability to hire similarly qualified employees for unfilled positions on or before

December 31, 2020; or• is able to document an inability to return to the same level of business activity as such

business was operating at before February 15, 2020, due to compliance with Federal government safety or health requirements during the period beginning on March 1, 2020 to December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.



The FTE Employee Reduction Safe Harbor of June 30, 2020 has been extended to December 31, 2020 with additional favorable provisions.

The exception for the borrower attempts to rehire employees who had been employed on February 15, 2020 was previously allowable; however, it has been expanded to include borrower attempts to hire similarly qualified employees for unfilled positions on or before December 31, 2020.

The exception of the borrower’s inability to return to the same level of business activity due to compliance with government safety requirements (i.e., guidance issued by Health and Human Services, the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration) is a new provision.



5. A borrower needs to use at least 60% of their covered loan amount for payroll costs, and may use up to 40% of such amount for any payment of eligible non-payroll costs including:

• any interest on any covered mortgage obligation (which shall not include any prepayment or payment of principal on a covered mortgage obligation)

• any payment on any covered rent obligation or• any covered utility payment.

This change allows borrowers to increase the amount of non-payroll costs eligible for loan forgiveness from 25% to 40% of the PPP loan amount (as long as 60% was spent on payroll, otherwise no non-payroll costs will be eligible for forgiveness).

Based upon the language used in this legislation, if the borrower does not use a least 60% of their PPP loan amount for payroll costs, they will receive no forgiveness (previously partial forgiveness was possible if the 75/25 rule was not fully complied with). This new guidance is referred to as a “forgiveness cliff.”

The concept of the forgiveness cliff was emphasized in a statement quoted by Market Watch on Wednesday afternoon. Senator Marco Rubio (R-FL), who had asked the Treasury Department to clarify its interpretation of this point, said: “the Treasury has told us they are going to interpret that bill — if you don’t spend 60% of your money on payroll, if you only spend 59.9%, you will get zero forgiveness.”



6. A borrower can defer payment of any principal, interest or fees related to their covered loan until the date on which the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender.

• If a borrower fails to apply for forgiveness of a covered loan within 10 months after the last day of the covered period defined in section 1106(a) of the CARES Act, the borrower shall commence making payments of principal, interest, and fees on such covered loan beginning on the day after the covered period ends.

This change allows the borrower to make no payments of principal or interest until the PPP loan forgiveness application has been accepted by both the lender and the SBA.

If the borrower fails to apply for PPP loan forgiveness within 10 months of the updated covered period, they must begin making payments of principal and interest. With regard to fees, these would be any borrower fees included in the promissory note with the lender.



7. A borrower can continue to defer the payment of the 6.2% employer portion of the social security tax after their PPP loan is forgiven.

Previously, a borrower could not continue to defer payments of the employer portion of social security tax after they received a decision from their lender on PPP loan forgiveness.

Payroll Tax Deferral

Allows employers regardless of size (and self-employed individuals) to defer payment of the employer share (6.2%) of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees.

• Payroll tax deferral period begins the day the CARES Act was signed, March 27, 2020 and is allowed thru December 31, 2020.

• The provision requires that the deferred employment tax be paid in (2) equal installments over the following two years:

• December 31, 2021 – 50% of the amount deferred• December 31, 2022 – Remaining 50% of the amount deferred

For more information, see Deferral of employment tax deposits and payments through December 31, 2020 on the IRS website

https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020


Main Street Lending ProgramThe Main Street Lending Program is designed to support lending to small and medium-sized businesses across the U.S. that were in sound financial condition before the onset of the COVID-19 pandemic.

• The Program will operate through three facilities:• Main Street New Loan Facility (MSNLF)• Main Street Priority Loan Facility (MSPLF)• Main Street Expanded Loan Facility (MSELF)

• The necessary legal forms and agreements for eligible borrowers to participate in the MSNLF, MSELF or MSPLF can be found on the website of the Federal Reserve Bank (FRB) of Boston.

• The Federal Reserve has published a list of frequently asked questions (FAQs) about the Main Street Lending Program that is also available on the FRB Boston website.

• Main Street loans are not grants and cannot be forgiven like PPP loans. The loans are underwritten and approved by eligible lenders.

• According to recent statements by the Federal Reserve Chairman, the central bank is “days away” from launching the Main Street Lending Program.

https://www.bostonfed.org/supervision-and-regulation/supervision/special-facilities/main-street-lending-program/information-for-lenders/docs.aspx


Main Street Lending Program

Visit our new Main Street Lending Program webpage for additional information and links to term sheets, application forms and other resources.https://www.tsacpa.com/coronavirus-covid-19-resource-center/main-street-lending-program/

https://www.tsacpa.com/coronavirus-covid-19-resource-center/main-street-lending-program/


Questions & Answers


Contact us…If you have additional questions:

• Visit our COVID-19 Resource Centerhttps://www.tsacpa.com/coronavirus-covid-19-resource-center/

• Email our Response Team [email protected]

• CONTACT USUse the CONTACT US box at the bottom of the webpage to send your questions directly to our Response Team. We will try to respond within 24 hours.

• Follow Tronconi Segarra & Associates LLP on for updates on the latest COVID-19 developments.

https://www.tsacpa.com/coronavirus-covid-19-resource-center/


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tsacpa.com

This publication has been prepared for general guidance on matters of interest only; it does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy of completeness of the information contained in this publication; and, to the extent permitted by law, Tronconi Segarra & Associates LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this website or for any decision based on it.

Copyright 2020 Tronconi Segarra & Associates. All rights reserved.

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